Lessons in legalization: Washington’s slick pot...

1of12General Manager Rob Raymond shows how finished, dried and trimmed buds of Narnia await packaging and labeling Sept. 20, 2016 at Soulshine Cannabis, a 50k-square-foot Tier III cannabis production and processing facility in an industrial area in Renton, Wash. Fresh cannabis buds are dried for 10 days and then placed into bins for curing and exposed each day to air in a process called burping for 15 more days before being trimmed. Each bin contains about 5 pounds of marijuana ready for packaging.Photo: Daniel Berman, Special to The Chronicle

2of12Soulshine Cannabis General Manager Rob Raymond holds up a fully packaged eighth of an ounce of Himalayan Blackberry cannabis, which will sell in stores for about $50 with tax.Photo: Daniel Berman, Special to The Chronicle

3of12Bud tender Evan Price organizes a display case at Uncle Ike’s in the Central District neighborhood of Seattle.Photo: Daniel Berman, Special to The Chronicle

4of12Ivy Gress, the marketing director of Vashon Velvet, sits with mother and company founder Susie Gress inside a grow of Sapphire Scout at the production plant in Vashon Island, Wash.Photo: Daniel Berman, Special to The Chronicle

5of12Finished examples of Rascal OG rest on a drying rack at the Vashon Velvet production plant in Vashon Island, Wash.Photo: Daniel Berman, Special to The Chronicle

6of12Customers are helped by bud tenders to select marijuana products they wish to buy at Uncle Ike's, among the largest pot shops.Photo: Daniel Berman, Special to The Chronicle

7of12Customers walk into Uncle Ike’s, a recreational marijuana store in the Central District neighborhood of Seattle.Photo: Daniel Berman, Special to The Chronicle

8of12“We look after them like our pets,” said Vashon Velvet co-founder Susie Gress, 64, shown looking at young plants in the clone room. “That's something you can't do as a larger grow. A business our size can't scale too quick.”Photo: Daniel Berman, Special to The Chronicle

9of12An up-close view of Rascal OG growing under $2,500-a-piece Illumitex LED grow lights at the Vashon Velvet production plant in Vashon Island, Wash.Photo: Daniel Berman, Special to The Chronicle

11of12Security guard Enrique Blaza checks the ID of Ronald Wayne, a visitor from North Carolina stopping in with his dog, Winston, for the first time in a legal pot store, Uncle Ike’s in Seatle.Photo: Daniel Berman, Special to The Chronicle

12of12Advanced Growing Solutions out of Eugene, Oregon engineered the grow rooms and setups seen Sept. 20, 2016 at Soulshine Cannabis, a 50k-square-foot Tier III cannabis production and processing facility in Renton, Wash. General Manager Rob Raymond shuts the doors to one of the company's grow rooms.Photo: Daniel Berman, Special to The Chronicle

SEATTLE — They were all out of Super Lemon Haze at Dockside Cannabis, so those looking for an agreeable alternative had to seek out the shop’s bud tender for help selecting from the kaleidoscope of products.

Among the options: the sticky orange-flecked flowers from the artisanal Vashon Velvet, whose creations are “for the pursuit of happiness,” and Mr. Moxey’s Mints, THC-infused candies that can be sucked by those seeking “a dash of panache and a wink in your step.”

Californians contemplating a future of legal marijuana after election day may want to gaze north, to places like this hip pot spot south of downtown Seattle, to see how radically the landscape has changed in the four years since Washington voters decriminalized recreational weed and the two years since retail sales launched.

A thriving, slick-marketed cannabis economy is fronted by boutique ganja shops where green-thumbed bud tenders wander like sommeliers, pontificating on their feel-good goods.

With more than 300 stores open, the price of getting high is falling with competition, tax revenue is pumping in and the black market is beginning to drift away like smoke from a vape pen, regulators say. It’s the kind of herbal haven about which some California tokers have dreamed, but it hasn’t come without wrenching policy fights, vocal critics and complications.

One of the most controversial moves came this year when Washington’s medical pot dispensaries were shut down to make way for the closely controlled market system that has generated more than $150 million in tax revenue this year alone, thanks to well over $400 million in retail sales.

Legalizing pot

In California, the annual tax haul could end up topping $1 billion, according to some estimates — money earmarked for drug research, treatment and enforcement.

“When we started, the federal government hadn’t weighed in on it — they were silent — so we built our system to be very tightly regulated,” said Brian Smith, a spokesman for the Washington State Liquor and Cannabis Board. “We had to build this industry from scratch. It didn’t exist anywhere in the world.”

The Evergreen State is laying out a blueprint for California to learn from if voters pass Proposition 64 on Nov. 8 and legalize recreational pot use for people 21 or older. Recreational use has already been given the green light in Washington state, Colorado, Oregon, Alaska and Washington, D.C., and five more states including California will weigh in next month.

Washington’s experiment is young, but so far there’s little sign of the public health disaster foretold by critics. Teen use of the drug has gone up slightly and adult use has risen moderately, according to surveys, as pot-related arrests have nearly disappeared.

There are indications that more people may be driving stoned, though the early data are limited, hazy and contested. In general, crime in Washington has fallen since pot was legalized, with violent crime down 5 percent and property crime down 4 percent from 2012 to 2015, according to the FBI.

Floor Manager Zelda Miltner straightens up around Uncle Ike’s sister glass shop, Glass and Goods. The store carries a variety of bongs and pipes and other smoking accessories, as well as the kind of branded merchandise that the main pot shop may not carry under state law.

Photo: Daniel Berman, Special to The Chronicle

Still, with retail sales climbing, people like Reggie Witherspoon have seen enough. The pastor of Seattle’s Mount Calvary Christian Center Church said the state ignored his mostly African American parishioners when it allowed Uncle Ike’s Pot Shop — one of the busiest stores in Washington, with more than $26 million in sales so far — to open 250 feet from the church’s teen center.

“It’s all about the money,” said Witherspoon, who has led demonstrations seeking to close down the shop and rescind the law, which he calls immoral. “They decided there is a lot of tax money to be had so they legalized it, but they are placing dollars over human lives.”

The experience in Washington suggests California’s multibillion-dollar pot industry is in for seismic shifts that could decide who profits — and whether existing medical dispensaries and new recreational stores can coexist.

In Seattle, pot has become part of the regular hustle and bustle, with thousands of people choosing from dozens of stores, all monitored from parking lot to counter by surveillance cameras. Customers are required to provide identification showing they’re 21 before they can browse the neatly arranged glass display cases, but nobody is allowed to sample the products — and the premises are devoid of that familiar skunky scent.

It’s the sanitized version of what authorities said was a failed medical marijuana system. There were once an estimated 1,100 or more dispensaries in Washington state, all guided by a system of rules that state officials described as “wink, wink, nod, nod.”

“It was getting a little out of control,” said Kristi Weeks, policy counsel for the Washington State Department of Health. “Sales were going to nonpatients, and brand new dispensaries were being set up right next to licensed stores and siphoning off business and tax revenue. Frankly, the licensees who had worked very hard and were following rigorous rules weren’t very happy.”

In July, the state Legislature folded together the medicinal and recreational markets, meaning anybody who sold pot had to be state-licensed and pay the 37 percent excise tax. Customers with medical cards are spared local sales taxes, but sales figures indicate a great many Washington residents are choosing to forgo that route.

The state cannabis board initially limited licensed stores to 334. Under pressure to accommodate medical marijuana providers, the board agreed to license 222 additional stores, all of them former dispensaries like Dockside. That still meant the closure of about 500 dispensaries, according to regulators.

“If you like to watch capitalists run amok, then you will like this system,” said Jeff Steinborn, a Seattle attorney who advocates for dispensary owners and fears the corporatization of the marijuana industry. “We’ve succeeded in making pot available for the wealthy.”

Perhaps 1,000 or more dispensaries now operate in California. And it’s no secret they serve both needy patients and those who simply enjoy partaking. But advocates of Prop. 64 say California dispensaries will survive.

Richard Miadich, managing partner at a Sacramento law firm that helped write Prop. 64, said the initiative would allow stores to be licensed as a medical dispensary, a nonmedical retailer, or a hybrid of the two. Both enterprises would pay a 15 percent excise tax, but recreational customers would also pony up the local sales tax. Existing dispensaries would be given first priority for licenses under the new system.

“You will have two systems that will be highly regulated that will be complementary and mirror each other,” Miadich said.

But nothing is carved in stone. The Medical Cannabis Regulation and Safety Act, passed in 2015, gives California until Jan. 1, 2018, to come up with rules for dispensaries and growers. Prop. 64 doesn’t specify how many recreational retailers to license, leaving that decision up to state regulators.

“It’s all a question right now,” said Veronica Harms, a spokeswoman for California’s new Bureau of Medical Cannabis Regulation. “We don’t have answers for the medical side, so we can’t determine what recreational would look like.”

Kraig Seltzer, a former Los Angeles gang officer, marched into Xander’s Green Goods in Tacoma one recent night and confronted the manager. A teenager had recently sneaked into the pot shop and nearly made a purchase before he was discovered — a security breach Seltzer deemed unacceptable.

“You heard what happened, right?” Seltzer, who is now an enforcement officer for the Washington State Liquor and Cannabis Board, asked the manager, who nodded.

“It’s your job,” Seltzer said sternly to the on-duty security guard. Then he turned back to the manager: “You help the guy at the door, OK? You double-check.”

Seltzer, who must do three annual compliance checks at each store on his beat, visited six that night, resolving complaints about signage and other violations, at least one of which was made by a rival store.

Washington opted for strict rules for pot-selling. Stores must have surveillance and every-customer identification. Child-proof packaging on all products must include measurements of pot potency, THC and cannabidiol, or CBD, the key nonpsychoactive ingredient in marijuana. Growers and food processors face a complex inspection, labeling and tracking system that requires a bar code to be affixed to every new sprout and remain with it until the plant is consumed.

A colorful mural on the exterior of Dockside Cannabis in the Sodo neighborhood of Seattle.

Photo: Daniel Berman, Special to The Chronicle

Washington also did away with “vertical integration,” meaning shopkeepers cannot raise their own plants and growers cannot sell their own weed. California’s proposition carries no such prohibition.

Steinborn groused, “They are regulating it like plutonium.” But many retail customers in Seattle appreciate what they’re finding on the shelves.

“I feel reassured that when I come in here I can get a safe product and sound advice,” said Debra, a 60-year-old nurse who was shopping at Dockside Cannabis, one of 49 licensed pot shops in Seattle, where art hangs from the ceiling and 1930s-era artifacts populate a cannabis museum.

She bought a packet of indica bud known as Sour Tsunami and pills and oil loaded with CBD, which she uses to relieve pain in her arthritic back. Pot may be legal, but she still asked that her last name not be printed in case some people frowned upon her choice to use the drug.

Those in Washington’s pot business complain about the regulations and the hefty tax, which other states have kept lower in a bid to defeat the black market. But the potential bounty is clearly enticing.

There are 902 marijuana growers and product manufacturers in the state in addition to the stores. In August alone, three retailers sold more than $1 million in goods, and a pair of growers sold more than $2 million in marijuana, according to records compiled at 502data.com.

“We heard from Colorado early on that when they opened their medical marijuana system, 50 percent of the businesses failed within 18 months,” said Smith of the Liquor and Cannabis Board. “We haven’t seen that. Some businesses have sold, but we haven’t seen too many failures. That’s because they are still making money.”

The regulations so far haven’t precluded small business owners with high-quality goods, though getting started can be difficult. Susie Gress, who founded the boutique farm Vashon Velvet with her sister and daughter and calls her cannabis the Dom Perignon of the market, said she sells five to seven pounds of pot a month and grosses between $15,000 and $20,000.

But she only broke even last year after deducting her expenses. And, due to the ban on vertical integration, she can’t set up a bud-and-breakfast inn to make ends meet like some California growers hope to do. Nonetheless, she expects to make a profit this year.

“It’s a huge expense and a complicated process,” Gress said. “It’s not going to make anybody rich, but it’s better than working at Starbucks.”

Mike Mercer, the co-owner of Soulshine, which began producing pot grown in its 50,000-square-foot warehouse in Renton in May, said the company has doubled sales every month, allowing it to donate a portion of sales to an animal rescue group.

The competition between purveyors means prices are dropping. A gram of dry flower, or bud, now costs about $9 — the cheap stuff can go as low as $6 — compared with a year ago when it averaged $10 to $12.

“Everyone had to drop their prices to compete with state-licensed stores,” Smith said. He said illegal sales, which made up an estimated 28 percent of the market in December, have been drastically reduced, a contention that several Seattle residents echoed.

Four years into Washington’s pot experiment, the stigma of the stoner is also wafting away, many in the industry say. There is even a move afoot to legalize vaping lounges and smoking bars so visitors have a place to get high and socialize.

“There’s less giggling about pot now, and people aren’t so embarrassed to be seen in a place like this,” Ian Eisenberg said as he mingled with employees at his Uncle Ike’s Pot Shop, which he owns along with an adjacent glass pipe and bong shop. “People now vape or smoke it like they are drinking wine.”

Peter Fimrite is The Chronicle’s lead science reporter, covering environmental, atmospheric and ecosystem science. His beat includes earthquake research, marine biology, wildfire science, nuclear testing, archaeology, wildlife and scientific exploration of land and sea. He also writes about the cannabis industry, outdoor adventure, Native American issues and the culture of the West. A former U.S. Forest Service firefighter, he has traveled extensively and covered a wide variety of issues during his career, including the Beijing Olympics, Hurricane Katrina, illegal American tourism in Cuba and a 40-day cross country car trip commemorating the history of automobile travel in America.